July 17, 2017

Daily Observations:

Equities rose to fresh all-time highs as economic momentum in China boosted optimism for global growth. Risk-on sentiment was further bolstered by softer-than-expected US inflation data on Friday, reinforcing the need for gradual policy tightening from the Fed. The dollar maintained losses, while crude oil and gold held onto gains.

US:

• CPI in Jun was unchanged from a month earlier, following a 0.1% decline the prior month; analysts had predicted a 0.1% rise. From a year earlier, prices were up 1.6%, slower than the prior rise of 1.9% and the median estimate of 1.7%.
• Core CPI rose 0.1% month-on-month and 1.7% year-on-year, both keeping pace with that of May; economists expected rises of 0.2% and 1.7% respectively.
• The report indicates inflation may remain stuck below the goal of Fed policy makers for a longer period of time, is a bit broader in scope and underscores concerns of some central bankers about additional rate increases.
• Retail sales last month slipped for a second month, sliding 0.2% from a month ago, and faring worse than the predicted rise of 0.1%.
• Industrial production gained 0.4% month-on-month, accelerating from May’s 0.1% rise and surpassing the median estimate of 0.3%.
• A sentiment index by the University of Michigan fell to 93.1, from 95.1 last month, registering a 9-month low and less than the consensus of 95.0.
• Dallas Fed President Robert Kaplan, who is a voting member of the FOMC this year, said Friday during a discussion in Mexico City that he would like to see “more evidence that we’re making progress in meeting our inflation objective before we take further steps in removing accommodation”.
• US Treasuries rose Friday to gain for their first week in three, bolstered by poor inflation data. The benchmark 10yr Treasury yield slid 1bp to 2.33%, paring an initial drop of as much as 6bps.
• The US dollar extended its weakness Friday, with the Bloomberg Dollar Spot Index falling 0.7% to fresh 10-month lows.
• US equities rallied, as the benchmark S&P 500 Index closed 0.5% higher at a new record high. Major financial firms JPMorgan Chase & Co. and Citigroup Inc. reported earnings with the former posting its highest annual profits ever for a bank over the past 12 months and the latter topping earnings estimates.

China:

• China’s economy maintained its momentum last quarter, as global trade and domestic demand spurred a pickup at the nation’s factories. GDP in the second quarter this year rose 6.9% year-on-year, keeping pace with the previous quarter’s expansion and slightly better than the median estimate of 6.8%.
• Retail sales in June surprised positively as well, rising 11.0% from a year ago, and better than the 10.6% increase expected. Fixed-asset investment climbed 8.6% in the first half of this year, versus a median forecast of 8.5% gain. Industrial output rose 7.6% in June from a year earlier, compared with an estimated 6.5% increase.
• The expansion highlights the resilience of China’s economy, as activity has remained robust even as policy makers have tried to curb excessive and speculative borrowing, leading to a slowdown in money supply growth. Synchronized growth in most developed markets has meant that exports have helped to keep the expansion on track, and the effects of a cooling property market are yet to kick in. The statistics bureau said the result “provides a solid basis” for meeting the full-year growth target of 6.5% or above.

Singapore:

• Non-oil domestic exports climbed 8.2% in June from a year earlier, the most in 3 months and higher than the median estimate of 5.0% and the May’s rise of 0.4%. Electronic exports rose 5.4% from a year ago, slowing from May’s 28.9% jump and less than the median consensus of 8.3%.

Precious Metals:

• Spot gold looks set to rise for the fifth straight day, gaining 0.3% to $1,232.36/Oz earlier after US inflation and retail sales data Friday clouded the outlook for further tightening from the Fed. The precious metal is currently testing the resistance at $1,230/Oz, where its 200-day moving average is close to as well. A breakout above the resistance would render the downtrend line since the early June broken, and signal more upside potential.
• Silver for immediate delivery added 0.7% and rose to $16.0955/Oz earlier. Downside risk continues to remain high for now with the next support coming in around $15/Oz.

Oil

• Crude oil futures expiring in August gained 1.0% on Friday and added another 0.4% to $46.71/bbl earlier today as optimism that supplies are poised to fall faster outweighed an increase in US rigs drilling for crude.
• Stockpiles will drop at a faster pace worldwide this half of the year as demand rises and OPEC members comply better with an output-cut agreement, Kuwait’s governor to the group said.
• US drillers targeting crude added 2 rigs last week, its smallest increase since May.

USDSGD:

• Spot 1.3696
• USDSGD slid below the 1.3700 handle for the first time since October last year, falling 0.2% to 1.3693 earlier amid broad US dollar weakness.
• The current support at 1.3700 remains key, a break below it may lead to further downside, with the next support level coming around 1.3500.

AUDUSD:

• Spot 0.7816
• AUDUSD earlier pared some of its 1.2% Friday rally which saw the pair reach a 2-year high. The pair fell 0.3% to 0.7809 earlier today despite upbeat China June GDP numbers.
• After rising 3.2% over the past 4 sessions, an overbought AUDUSD was due for a breather. However the momentum firmly belongs to the upside, and a breakout above the key 0.7835 resistance will be keenly watched for.

USDCAD:

• Spot 1.2655
• USDCAD extended its fall Friday by another 0.7% to 1.2644, a fresh 14-month low, and remained near its lows during Asia trade earlier today.
• The Canadian dollar has been the best performing currency in the world over the past 2 months. The next bastion of support lies at 1.2460 – the pair’s 2-year low.

USDCNH:

• Spot 6.7824
• The PBOC strengthened its fixing by 0.31% to 6.7562 per US dollar earlier.
• USDCNH was largely unchanged following a 0.6% decline last week.
• Meanwhile, onshore yuan rose for sixth day in a row, the longest run of gains since 2015, boosted by a stronger central bank fixing and data showing Chinese GDP held up in the second quarter.

USDJPY:

• Spot 112.61
• USDJPY added 0.1% to 112.69 earlier today to halt 3 consecutive sessions of declines.
• According to a Bloomberg news piece last week, yen weakness seems inevitable after the BOJ recently delivered a clear signal in the bond market it has no plans to follow other major central banks in rolling back stimulus anytime soon.
• The key resistance for the currency pair remains at 115.50.

GBPUSD:

• Spot 1.3097
• GBPUSD broke above the 1.3000 forcefully Friday, surging 1.4% to 1.3098.
• With momentum firmly now with sterling bulls, the next point of resistance at 1.3450 looks to be tested soon.